In late 2022, digital assistant ChatGPT popularized generative artificial intelligence (AI), which uses machine learning models to create media content such as text, images, and videos. Since ChatGPT’s arrival on the market, companies across all industries have been aggressively investing in generative AI in the hopes of improving worker productivity through automation.
Chipmaker Nvidia has been a big beneficiary of this development: Unprecedented demand for its data center GPUs has seen the company’s revenue nearly triple over the past year, while its stock price has soared 145% in the same period. But investors who missed out on those gains haven’t missed out on the opportunity to cash in on the AI boom.
Bloomberg Intelligence predicts that generative AI revenue will grow 2,040% to $1.4 trillion by 2032, growing at a 41% annual rate. This upward trend will boost many companies over the next decade, but Amazon is (Nasdaq: AMZN) You’re sure to win big, and here’s why:
Amazon is investing in artificial intelligence across three of its core businesses
Amazon has a strong presence in three fast-growing markets: it operates the top e-commerce marketplaces in North America and Western Europe by revenue, it is the third-largest digital advertiser and largest retail media advertiser in the world, and Amazon Web Services (AWS) is the leading public cloud in terms of infrastructure and platform services.
Amazon is using artificial intelligence (AI) to improve efficiencies and create new revenue streams across its three business segments.
E-commerce: In February, Amazon released a generative AI shopping assistant (Rufus) for consumers. It also introduced generative AI tools to help sellers build product listings. Additionally, in its North American fulfillment centers, Amazon is using generative AI and computer vision to spot defects in products before they are shipped to consumers. It is also using machine learning to optimize warehouse inventory and last-mile delivery, making its logistics operations more efficient.
Digital advertising: Last year, Amazon introduced a generative AI tool that allows marketers to create relevant and compelling lifestyle imagery featuring their products. In theory, this allows brands to run more cost-effective ad campaigns. Additionally, Amazon is using machine learning to ensure consumers see more relevant sponsored product ads on its marketplace.
Cloud computing: AWS designed custom AI chips for training and inference as a cheaper alternative to Nvidia GPUs. The company also added new features to its machine learning platform SageMaker and generative AI platform Bedrock. CEO Andy Jassy recently told analysts that “in the last 18 months, AWS has made more than twice as many machine learning and generative AI capabilities generally available than every other major cloud provider combined.”
Looking more broadly, AWS accounted for 32% of cloud infrastructure and platform services (CIPS) spending in the June quarter, 9 percentage points ahead of its next closest competitor, Microsoft Azure. Its leadership in CIPS means that AWS stands to benefit greatly as companies invest aggressively in artificial intelligence.
In a recent note, Argus’ Jim Kelleher wrote that “AWS, as a leading provider of infrastructure and other cloud services, is uniquely positioned in the fast-growing market for AI services.” Additionally, executives surveyed by Morgan Stanley collectively believe that Microsoft Azure and AWS are the public clouds most likely to capture share of generative AI over the next three years.
Amazon’s stock is trading at a fair valuation
According to eMarketer, retail e-commerce sales are projected to grow 8% annually through 2028, while digital ad spending is projected to grow 10% annually over the same period. But because retail media is one of the fastest-growing segments of the advertising industry, Amazon should outperform. In fact, the company is gaining market share so quickly that it could overtake Meta Platforms to become the second-largest advertising technology company by 2030.
Additionally, International Data Corp. (IDC) predicts that public cloud spending will grow 19% annually through 2028. However, artificial intelligence platform services are expected to be the fastest growing segment within cloud computing, with spending expected to grow 51% annually during this period, which bodes well given AWS’ leadership in CIPS.
With these projections, Amazon is likely to achieve double-digit sales growth in the near future, and profits should grow at a slightly faster pace as the company prioritizes cost control. Wall Street expects Amazon’s adjusted earnings to grow 25% annually through 2025, so its current valuation of 42 times adjusted earnings seems reasonable. That’s why now is a good time for patient investors to buy a small amount of Amazon stock.
Should I invest $1,000 in Amazon right now?
Before you buy Amazon stock, consider the following:
The analyst team at Motley Fool Stock Advisor has identified the 10 best stocks for investors to buy right now, and Amazon isn’t on the list — all of these stocks have the potential to generate huge gains over the next few years.
Let’s look back at April 15, 2005, when Nvidia made this list… if you had invested $1,000 at the time of our recommendation, you would have $731,449.!*
Stock Advisor offers investors an easy-to-follow blueprint for success, with portfolio construction guidance, regular updates from analysts and two new stock picks every month. Stock Advisor The service is More than 4 times First S&P 500 recovery since 2002*.
View 10 stocks »
*Stock Advisor returns as of September 3, 2024
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and communications at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Genewine owns shares of Amazon and Nvidia. The Motley Fool owns shares of and recommends Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The post Generative AI Revenues Could Rise 2,040%: The Best AI Stock to Buy Now (Hint: It’s Not Nvidia) was originally published by The Motley Fool.
